RAM Ratings has reaffirmed the AA2/Stable rating of the Development Bank of Kazakhstan Joint-Stock Company’s (DBK or the Bank) MYR 1.5 billion Sukuk Murabahah Programme (2012/2032). The rating reflects the credit strength of the Government of Kazakhstan (GOK, rated AA2(pi)/Stable/P1(pi)), given RAM Rating’s opinion of a very high likelihood of support in times of need.
DBK, ultimately owned by the GOK, plays a strategic role in facilitating the latter’s goal in diversifying Kazakhstan’s economy away from the oil and gas sector. The GOK has been firmly backing the Bank, particularly through numerous capital infusions between 2009 and 2014, besides ongoing funding support.
As a development financial institution, DBK’s loan book inherently carries higher credit risk as it finances large-scale, long-term infrastructure and industrial projects that include green-field developments. Nonetheless, its gross impaired-loan ratio had eased to eight per cent as at end-June 2015 (end-December 2013: 24 per cent), albeit still deemed elevated, after the disposal of a large chunk of impaired loan in 2014 and experiencing strong loan growth during the period. RAM expects further stress on the bank’s already-weak loan quality following the devaluation of Kazakhstan’s tenge (KZT) in August this year, especially in relation to borrowers of foreign-currency loans without foreign-currency revenues. The bank’s exposure to high credit risk is, however, moderated by its adequate capitalisation. As at end-December 2014, DBK’s tier-1 capital ratio stood at 20 per cent.
To match the long maturities of its loans, DBK relies heavily on long-term wholesale borrowings. Although this subjects the bank to refinancing risk, the maturity profile of its wholesale debts is well spread out. This, coupled with the bank’s liquid balance sheet, supports its sound liquidity position. Although DBK’s assets are mainly denominated in USD, its foreign-currency mismatch is manageable as the bank also predominantly borrows in the same currency. As such, the devaluation of the KZT is not expected to affect DBK’s ability to service its debt obligations.
Originally published on www.cpifinancial.net